Who said tax is boring?

The sky’s the limit

“What did I do wrong? I only asked for the top floor”

Winding my way up the world from Western Australia last week, the doors of my mind opened on a vision of Elisha Otis . Elisha Who? Who Otis? Who Who? Odds on, anyone reading this blog has seen the name at least once in the past 24 hours. At the New York World’s Fair in 1854 Otis daringly demonstrated his safety mechanism for elevators that prevented them from falling in the event the cable broke (a device now ubiquitous but generally absent from Hollywood disaster movies). Otis, the founder of the first (and still largest) elevator company that bears his name, made skyscrapers possible, King Kong an icon and Hong Kong an eyesore.

Taking up on that last point, arriving in Hong Kong last week I decided to try a repeat of my first visit to New York a third of a century ago. Then, striding out of Grand Central onto 42nd Street I was gobsmacked by the sight of the Art Deco Chrysler Building, the tallest building in the world for a brief 11 month reign until brashly superceded by Al Smith’s Empire State. Exiting Hong Kong Central I expected to be dumbstruck by the fabulous Business District Towers that appear in pictures taken from nearby Victoria Peak. The reality was somewhat different. Walking along a labyrinth of roofed concrete walkways with occasional offshoots to building entrances along the way, I eventually came to an escalator that took me down to what I assumed was ground level because, firstly, there were no more stairs going down and, secondly, there were antiquated trams, up-to-the-minute buses and cars going by at speed on the narrow road. I am sure that, had I been a contortionist, I could have enjoyed the surrounding architecture but, as a mere mortal, I would have had to lie flat on my back to have any chance of getting a view from the compressed concrete mass in which I found myself. That, in turn, would have meant being sliced by a tram, flattened by a bus or trampled by 3000 blissfully unaware commuters engrossed in their smartphones, faceless thanks to green standard-issue surgical masks, like something out of Pink Floyd’s “The Wall”.

My first impressions of Hong Kong were, I am afraid, underwhelming. Traveling along Hong Kong Island and into mainland Kowloon on the MTR Subway, popping up to street level at random stations like a mole with a mission, everywhere seemed much the same – tall buildings, people, relatively narrow streets, more people, shops and even more people.

When it comes to tax, however, Hong Kong is quite overwhelming. Styled as an ideal holding company location with the same longing for respectability as the massage parlours advertised on the euphemistically worded signs propped up by young ladies on street corners, there is much to recommend this overpopulated enclave. Offering a territorial basis of taxation, the 16.5% corporate rate looks respectable but is generally heavily diluted. In recent years, recognizing that the days of privacy are up, Hong Kong has pursued an energetic programme of tax treaty negotiations. An educated population with sky-high average IQ means that there is a ready supply of plausible managers for holding companies; there is also a well-oiled legal system and a fully functioning stock exchange. The local managers of a company occupying no more than a single drawer in a Trust Company’s office may be able to successfully argue that the company is legitimate as there is no room in Hong Kong for a company occupying two drawers. Only royalties face withholding tax but, in any case, the building of a factory required to pay them would probably displace thousands of residents into the South China Sea – space is of the essence and manufacturing no longer seems quite the thing.

Human face of Communism

The only downside of Hong Kong as a Holding Company Location (dare I say, Tax Haven?) is that it is tucked under the armpit of a rather large country not known for its championing of laissez-faire and existentialism (or any big words other than “communism”). A rather big downside.